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What's in Store for McDermott (MDR) This Earnings Season?

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McDermott International, Inc. MDR is expected to release first-quarter 2018 results before the opening bell on Apr 24.

In the preceding three-month period, the company delivered a positive earnings surprise of 233.33% on the back of strong project execution, and increased marine and fabrication activities. Further, the company reported an average positive surprise of 247.07% in the trailing four quarters.

 

McDermott International, Inc. Price and EPS Surprise

 

McDermott International, Inc. Price and EPS Surprise | McDermott International, Inc. Quote

 

Let’s see how things are shaping up for this announcement.

Which Way are Estimates Treading?

Let’s take a look at the estimate revisions to get a clear picture of analysts’ opinion on the stock before the earnings release.

The Zacks Consensus Estimate of 5 cents for the first quarter has been stable in the last 30 days but declined from 11 cents estimated 60 days ago. The estimate of 5 cents also reflects a year-over-year decline of 37.5%.

However, analysts polled by Zacks expect revenues of $591 million for the quarter, indicating a rise of 13.9% from the year-ago quarter.

Factors at Play

Per EIA data, the commodity rose about 7.5% in the first three months of 2018 to finish the quarter at $64.87 per barrel. In fact, the first quarter of the year saw the U.S. oil benchmark to attain its highest settlement since December 2014, despite a record high domestic production. Crude was supported by various catalysts including strong demand, and continued production curb from OPEC and its allies. The recovering commodity market calls for higher investments from oil majors and in turn benefits the energy services companies like McDermott.

In fact, the company recently provided first-quarter 2018 operational update, wherein it expects its top line for the January-March quarter to be in the range of $600-$610 million, much higher than the year-ago figure of $519.4 million. Moreover, McDermott expects its EPS for the quarter to be within 10-12 cents, higher than the year-ago EPS of 8 cents.

Moreover, McDermott expects its operating margin in the quarter to be in the range of 10-10.7%. Per McDermott, cost saving efforts like the Fit2Grow initiative will play a crucial role this quarter. In fact, the Fit2Grow initiative alone is likely to generate $15 million in savings for the company.

However, McDermott, being an engineering and construction company solely focused on the offshore oil and gas business, seems to be plagued by the challenging offshore environment. The company expects its total backlog in the quarter to be around $3,400 million, slightly lower than the Zacks Consensus Estimate of $3,800 million. Further, the backlog also compares unfavorably with $3,901 and $3,898 million levels recorded in the last quarter and the year-ago quarter, respectively.

Earnings Whispers

Our proven model does not conclusively show that McDermott is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at 5 cents.

Zacks Rank: McDermott carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, 0.00% ESP makes a surprise prediction difficult.

Note that we caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Earnings

While earnings beat looks uncertain for McDermott, one can consider some firms within the same industry having the right combination of elements to beat estimates this quarter:

Oil States International, Inc. OIS has an Earnings ESP of +32.14% and a Zacks Rank #2. The equipment service provider is anticipated to release earnings on Apr 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

NOW Inc. DNOW has an Earnings ESP of +17.65% and a Zacks Rank #3. The energy equipment maker is expected to release earnings results on May 2.

USA Compression Partners, LP USAC has an Earnings ESP of +3.12% and a Zacks Rank #3. The partnership is anticipated to release earnings results on May 3.

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